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Summit guest

September 17, 2011

US Treasury Secretary Timothy Geithner urged EU policymakers to scale up their rescue fund to tackle the debt crisis and speak with one voice as eurozone ministers delayed a decision on Greece's next bailout loan.

Euro sculpture is see in front of the European Central Bank
The eurozone is under pressure to solve the Greek problemImage: AP

US Treasury Secretary Timothy Geithner urged eurozone ministers to leverage their 440-billion-euro ($606 billion) bailout fund and free more resources to tackle the debt crisis during a closed meeting of EU finance ministers in Wroclaw, Poland.

The meeting came as officials from the eurozone and the International Monetary Fund said they will decide in October whether to approve a batch of bailout loans that Greece needs to keep it from bankruptcy.

US Treasury Secretary Timothy Geithner
Geithner believes European leaders have the capacity to actImage: picture alliance/dpa

Analysts say the European Financial Stability Facility (EFSF) - set up in May 2010 and so far used to bail out Portugal and Ireland - must be increased in size to build market confidence in Europe's ability to contain the crisis.

But Germany and others refuse to bolster the fund and eurozone national parliaments have yet to ratify new powers agreed for the fund two months ago that would allow it to make precautionary loans to countries in trouble and buy sovereign bonds to prop up struggling states.

After attending the opening talks between eurozone finance ministers, Geithner said Europeans must work together to address the crisis.

"What's very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the central bank," he said. "Governments and central banks need to take out the catastrophic risk to markets," he added, and prevent "loose talk about dismantling the institutions of the euro."

Geithner's appearance at the meeting of European ministers is a sign of how the US is getting increasingly concerned over the global impact of the eurozone debt crisis. Earlier this week, US President Barack Obama warned that Europe needed to do more to solve its problems.

"We will continue to see weaknesses in the world economy, I think, so long as this issue is not resolved," said Obama.

Brussels urged to solve own problems

While Obama said Washington was "deeply engaged" with the EU countries in solving the crisis, he added that only Europe could solve its own problems.

IMF Managing Director Christine Lagarde
Lagarde said developed economies had entered a "dangerous phase"Image: dapd

In a decision announced Thursday, the European Central Bank along with its US, Japanese, Swiss and British counterparts, announced it would make short-term loans of US dollars available to banks.

The news dramatically boosted European bank shares and the euro. International Monetary Fund chief Christine Lagarde said the joint move was "exactly what is needed."

However, she also warned that past indecision meant that the world's developed economies had entered a "dangerous new phase."

The European Central Bank (ECB) has asked that the European Financial Stability Fund be established as quickly as possible to take on the task of bailing out ailing economies.

That will require numerous countries to agree to the measures, though resistance against more aid has been growing. While there is opposition in Germany, there are also significant concerns in Austria, the Netherlands, Slovakia and Finland.

Finnish obstacle

Finnish Finance Minister Jutta Urpilainen
Finland's Urpilainen demands collateral for Greece loansImage: dapd

On Friday, Finnish Finance Minister Jutta Urpilainen reiterated her country's demand for collateral in return for new loans in connection with the second bailout of Greece - a major obstacle to the deal.

"I think we are going to negotiate about it [collateral] but unfortunately I don't see that we can find a solution [on Friday]," Urpilainen told reporters.

"We continue to negotiate, I'm optimistic that we can find a solution that everybody can accept."

Author: Gabriel Borrud, Richard Connor (AFP, AP, Reuters)
Editor: Martin Kuebler

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